Orange Beach homeowners to see tax hike with council plans to scale back homestead exemption

ORANGE BEACH, Alabama -- Regardless of how the Sept. 28 property tax referendum turns out, some homeowners are poised to see their ad valorem bills rise next year.

In trying to determine whether the proposed 2-mill increase would be applied to owner-occupied homes, municipal officials said they've learned that the city's six-year-old law exempting residents' primary homes from the municipal property tax has been more generous than that state law allows.

City Attorney Wanda Cochran said Tuesday that Orange Beach is limited by state law to lopping off $4,000 from a property's assessed value, which is the figure used to calculate tax bills. That discount equates to an annual tax break of $16 if Orange Beach's millage rate remains at 4 and $24 if voters raise it to 6 next month.

Though City Council members were undecided Tuesday on the wording of a new homestead exemption law, they said they planned next week to adopt one that replaces the 100 percent exemption with the maximum discount spelled out in state law.

"We think the better practice is to parallel the state levy," Cochran said Tuesday during a council work session. "Legally city ordinances are presumed valid ... until they are overturned by a court. And the fact that I've rendered an opinion that differs from another lawyer doesn't make the ordinance invalid or illegal. It simply means that if I were a betting woman, I wouldn't put any money on this one."

Said Mayor Tony Kennon: "It's just better in my opinion not to go off and be a cowboy. If state law says this, we should abide by it. I think that's the right thing to do."

Giving the full homestead exemption costs the city about $175,000 a year, according to Finance Director Clara Myers. All but a sliver of that amount would come to city coffers next year if the council adopts the state's parameters, which have been in place for about 30 years.

With or without the proposed millage hike, the change will typically mean somewhere between $100 and $200 a year in taxes for Orange Beach homeowners, depending on the value of their property.

Consider the owner of a primary residence valued by Baldwin County at $300,000. In recent years that owner has paid no city property tax. If the exemption was revoked outright, the annual bill, for 4-mills, would be $120. Should the council adopt the maximum discount allowed under state law, the bill would be $104. And if voters approve the Sept. 28 referendum that owner would pay $156.

The change will undoubtedly alter the dynamics of next month's referendum by putting homeowner's pocketbooks into play.

Without any change many voters would have little reason not to vote for the 2-mill hike because it would help close a municipal budget gap and preserve city services while not costing them a dime. Now there will be some money, albeit a relatively small sum, at stake for those who have held a homestead exemption on their property.

"Homestead exemption becomes somewhat of a moot point relative to a 2-mill increase because the value is so small," Kennon said.

A mill equals $1 for every $1,000 in assessed value. Owner-occupied homes are assessed at 10 percent of their appraised value while commercial property, vacant land and second homes are assessed at 20 percent. Annually, 2 mills amounts to $200 in new taxes for the owner of a $500,000 vacation property but -- factoring the exemption of $4,000 in assessed value -- only $92 for the owner of a primary residence of the same value. ¶

If voters approve the 2-mill hike it will generate an estimated $1.5 million per year for the city annually.